Over the last couple of years, I have passed on to you many basic investing principles.
I hope these have helped you avoid unnecessary mistakes and improve your financial situation.
However, there is one crucial principle I have yet to address.
It is so simple that I could show how it works on a post-it note.
And it’s never been more important than it is right now.
The Most Important Picture In Investing
In many ways, investing is a language.
You must understand the charts, the balance sheets, the footnotes, etc… and then have the knowledge to pull it all together.
Completing a finance degree is one approach.
However, one vital investing skill is rarely taught in business schools.
I’m speaking of psychology.
It’s often ignored, despite being the most powerful force moving the stock markets.
Here’s a chart of the economy over the last 50 years:
On average, the economy grows by about 2% per year… though some years it increases by 3%, others by just 1%.
At the extremes, it can go up by 4% or decline into negative territory by a percentage point or two.
However, overall, GDP growth shows only modest volatility.
Now, companies’ profit results over the same period move more like this:
That’s because companies use financial and operating leverage to expand their operations and increase profits.
As a result, if the economy goes up by 2%, business profits can increase by 10% or more. The opposite holds true during economic declines.
Now let’s look at the stock market’s movements during the last 50 years. It’s the most volatile of the three:
Individuals are the ones buying and selling stocks… and human beings have feelings.
They rarely do what they’re supposed to do and typically have excessive reactions to economic developments.
It’s this overreaction that leads to volatility in the stock market, with the turning points representing moments of peak greed and peak fear.
Understanding this ebb and flow can significantly improve your investment success.
The reason I’m reminding you of this principle today is because we seem to have reached a significant turning point in this endless up and down movement.
We Have Reached A Peak-Fear Moment
Until today, I wasn’t sure when this crisis would end.
Despite correctly predicting that the Fed’s intervention will mark the bottom of the stock market crash, I was still concerned.
The fear around coronavirus remains so powerful, I worried, that it could push the market lower.
However, I now think that risk has passed.
I concluded a while ago that we would reach the turning point of this crisis— the peak-fear moment—when daily new coronavirus cases and daily death counts reached their highest points.
And that’s what happened this weekend.
Daily new cases around the world seem to have peaked on Friday, with daily new deaths in decline since Thursday.
Meaning I can finally say with certainty that we have reached the stock market’s bottom.
The Two Stocks To Buy Now And Why
The question is which stocks to buy now that we’ve reached this turning point?
We are still in a recession, and some companies will come out of it better than others.
I have pin-pointed three essential criteria you should use when selecting companies for investment.
They are a robust balance sheet, established market share, and excellent long-term growth projections.
I’ve written in detail about these criteria in the latest edition of my True Retirement Wealth.
You can get on board here now in time to receive your copy, which will be released hot off the virtual press tomorrow.
Moreover, the issue features two stocks that I believe have the highest upside potential going into the next bull market, and why this is the time to buy them.
You can grab your copy here.